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IMF's outlook on Spain deficit

Tue 21st Jun 2011

Earlier today the International Monetary Fund spoke of significant risks to the economy of Spain, and that the austerity measure imposed by the government did not go far enough to repair that damage already caused by the property crash and increasing levels of deficit.

The IMF continued to warn how the country faced further risks if it was unable to reign in spending by the Autonomous Regions reform both the financial sector and employment regulations.

In the short term, worries are that sovereign risk in the euro zone could increase, raising the cost of borrowing. In the medium term, the country could be faced with a long, slow recovery and high rate of unemployment.

Under these circumstances house prices would slide further still, costs of borrowing would at best stagnate and the rate of unemployment would struggle to right itself.

The country managed to reduce the annual public deficit from 11.1% of annual gross domestic product (GDP) in 2009 to 9.2% of GDP in 2010, but central government will need to make further measures in order to meet its medium-term targets of arriving at the EU target of 3.0% of GDP.

This news follows the announcement last month by Finance Minister, Elena Salgado, that no new austerity measures would be imposed before next year's general election.

The IMF said how it's own estimates for the growth in the country's economy was more cautious than their own, coming in at 2.0%, meaning that Spain would have to find an extra 2% of GDP in savings through 2014.

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